Posts Tagged ‘Class Act’

The Hill a Congressionally focused newspaper based in Washington, DC reported that the Energy and Commerce Committee’s Health and Oversight subcommittees held a joint hearing on the CLASS Act on Wednesday.

Among those who testified at the hearing was former Rhode Island Congressman Patrick Kennedy, who’s father led the fight for health care reform for decades. Kennedy called the rapid growth of those age 65 and over coming in the next several decades a “demographic tsunami” — meaning the need would far outstrip available funds in Medicare and Medicaid. In 2000 there were approximately 35 million people age 65 and older. This is now estimated to grow to 70 million by 2030.

What was apparently left unsaid at the hearing is that employers are now the critical link in the long-term care chain by default. Employers can help pre-retirees plan for long-term care needs through insurance, and in doing so, protect their savings and retirements. The average length of long-term care is three years, and can easily exceed $250,000 in costs, wiping out most patient’s savings and retirement. Federal programs only kick-in after savings are exhausted and are for nursing home care.

Today, the House is scheduled to vote on a bill that would roll back the healthcare law’s Medicaid expansion. The bill, sponsored by Rep. Diane Black (R-Tenn.), would change the way the federal government calculates whether people are eligible for Medicaid. About a million middle-income people who became eligible for Medicaid under the reform law would lose that eligibility if Black’s bill were to become law. The Hill reports that the bill will likely pass easily.

Republicans are also pushing hard to formally repeal the CLASS Act from the healthcare law, reports the Hill. They also reported that the U.S. Chamber of Commerce endorsed repeal last Friday, saying Congress shouldn’t leave an unworkable program on the books even if HHS isn’t going to try to implement it.

There’s an excellent article on the web site “Helping You Care” (which is a quasi non-profit organization based in Florida) that points to the fact that within in the S&P downgrade was a strong reference to the issues around long term care.

The article notes, “In all the political finger pointing and hot rhetoric, few have noticed that in its Rationale for its current rating action, S&P specifically cites its previous report, “Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now,” issued on June 21, 2011. In that report, S&P warned that a “looming U.S. fiscal bill is growing as the population gets older,” and that “the challenges facing the U.S. are more severe than those facing many of the other major industrial societies … because of its rapidly escalating health care costs.”

S&P’s June, 2011 report introduced the subject by stating:

“As the baby boomers start to reach retirement age, the percentage of the U.S. … population eligible for government support will begin to mount. Babies born in 1946 turn 65 this year and will become eligible for Medicare. They will also be entitled to start collecting full Social Security retirement benefits next year, under the current system. The U.S. government, however, is not currently collecting enough money to pay its Medicare, Social Security, and other long-term bills.”

In that June report, S&P pointed out, “In 2010, there were 26 retirees for every 100 members of the U.S. labor force. By 2050, however, we expect that there will be 50 retirees per 100 workers. In other words, the U.S. will go from four workers to support every retiree to only two.” [End of Quote]

The June S&P report, along with comments today from leaders in Washington, point to the fact that the future of long term health care as covered by Medicare and Medicaid are far from set in stone. In many cases, this were already a myth since they required dilution of retirement and other assets before being able to access.

As the debt ceiling discussion becomes more and more about health and long term care costs, those planning for their retirement will want to take every measure to protect themselves for the future, and that includes considering long term care insurance.

The U.S.A. seal of approval is as good as the Good Housekeeping seal of approval for many citizens. After all, the Federal government has never reduced Social Security benefits or Medicare and the country has not shown the political will to curb spending on these politically popular programs. Everything has limits though and if the Federal deficit is not approaching its limit, it be getting close.

Besides that, CLASS Act is fundamentally different from Social Security and Medicare because most every American participates in both these programs. CLASS Act on the other hand is voluntary; each person, young, old, healthy and sick will make an individual decision to participate or not. And that’s the problem. As discussed previously, a voluntary program violates the fundamental underpinnings of all insurance; spreading a risk over an entire population.

According the Allen Schmitz, FSA, MAAA from Milliman, and independent and highly respected actuarial firm, CLASS Act premiums are actually more likely to increase than private insurance. He says “there is probably greater risk that CLASS Act will need rate increases than the private market”. There are many reasons for this and several have been discussed in previous posts. Adverse selection, premium subsidies for certain groups, limitations on increasing premiums for certain groups.

Another issue understood by few people without an insurance or actuarial background is the methodology of determining the rates that will be sustainable over a 75 year window. By statute CLASS must set rates to ensure financial viability for 75 years, and after 10 years the Department of Health and Human Services will review pricing to ensure the program enough premiums collected to cover benefits projected for the next ___ years.

The problem with using a 75 year window is that it does not take the “tail” of long-term care into consideration. What I mean by that is at the end of 75 years you have many healthy people who have contributed premiums for 20, 30 and even 50 years. Well when they figure solvency at the end of 75 years, the claims that will come due for all those people who have paid in to the program are not considered.

Empower helps employers of all sizes implement long-term care insurance benefit programs in the workplace and conducts workshops & educational classes concerning LTC and the CLASS Act for employers and employees. If you would like to know more about the CLASS Act and how it might impact your company call us.

We also provide Resources, training, and assistance to brokers looking to educate and help their clients with Long Term Care and understanding the CLASS Act.

Despite our current deficit and the fiscal condition of government programs like Social Security and Medicare, many people believe a Federal program has to be better than private insurance.

I can certainly understand that when you look recent events like government bail outs of banks, automobile manufacturers and homeowners under water with their mortgages. But at some point, bills come due, and the combined effect of America aging and the burden of our current entitlements are the reasons the CLASS Act is to be funded completely by participant premiums.

When you hear your premiums go in to a lock box, do you feel secure? Can you visualize a large box made out of heavy steel with a giant lock? Unfortunately this isn’t how it works. The Federal government uses trust fund accounting. The money coming in from premiums is included with all other revenue collected and used to pay current obligations. At the same time, those premiums are credited to a trust fund that will accumulate interest. The problem is, even the Federal government can’t spend the same money twice.

Anything accumulated in the trust fund becomes an IOU from the general budget and we all know what condition that is in. According to the bi-partisan fiscally conservative Concord Coalition, Congress could have moved the CLASS program entirely out of the budget and invested the premiums in private securities that would have been available to pay claims, but genuinely funding the program would have eliminated money Congress needs to pay for healthcare reform.

In my next blog we look at Myth #3 – CLASS Act premiums are less likely to increase in the future than private insurance.

Empower helps employers of all sizes implement long-term care insurance benefit programs in the workplace and conducts workshops & educational classes concerning LTC and the CLASS Act for employers and employees. If you would like to know more about the CLASS Act and how it might impact your company call us.

We also provide Resources, training, and assistance to brokers looking to educate or help their clients with and Long Term Care and understanding the CLASS Act.

Without crossing into the realm of political opinion of big government vs. small government and the correctness of our entitlement programs, the fact is many Americans believe the Federal government programs come with an official seal of approval. In other words, many people will participate in CLASS Act without fully understanding the issue or the difference between private and the CLASS Act. If it’s run by the government it must be better, right?

Well sometimes reality isn’t pleasant, but CLASS won’t solve the long-term care problem for most people. First, CLASS Act will not enroll its first participant until around 2013, and once enrolled, five years of premiums must be paid in before benefits can be collected. That means anyone older than 57 cannot be eligible to receive benefits until they reach age 65. Considering that 40% of people currently using long-term care services are under the age of 64, CLASS will be too late for you?

CLASS Act will pay a cash benefit of no less than $50 per day based on the number of ADL’s you cannot perform without assistance. That means the minimum annual benefit is pegged at $18,250 per year. Have you looked at the cost of care lately? It varies by the type of care you need or desire and there are large differences depending on the region of the country you live in.

In 2008, the average cost of home care throughout the United States was $20 an hour according to the Metlife Market Survey of Home Care Costs, but if you live in the northeast or other high cost states, the cost is as high as $28 per hour. And if you are in a high cost state like MA nursing homes and assisted living facilities average over $100,000 and $50,000 respectively.

Without education many Americans participating in CLASS will not understand the true nature of the problem and think they are covered with the nominal benefit they’ll be eligible for.

Empower helps employers of all sizes implement long-term care insurance benefit programs in the workplace and conducts workshops & educational classes concerning LTC and the CLASS Act for employers and employees. If you would like to know more about the CLASS Act and how it might impact your company call us.

We also provide Resources, training, and assistance to brokers looking to educate or help their clients with and Long Term Care and understanding the CLASS Act.

Most of the press on CLASS Act hails the program for solving a problem that has devastated millions of American families. And there are some important benefits, but you almost forget that people will need to actually pay premiums themselves that are projected to be $180-$240 per month. By statute, CLASS Act will be funded exclusively by participant premiums. And those premiums must be set to ensure the program is actuarially sound for 75 years.

Adverse selectionI discussed adverse selection on my previous post as causing more unhealthy people to participate in greater numbers than those of healthy people. I think it’s pretty clear why that would cause premiums to be higher than private insurance carriers who require medical underwriting to control cost. With no underwriting, CLASS is a good thing for the sick people who cannot get less expensive private coverage making CLASS a high risk pool for people uninsurable in the private market.

Subsidized premiums
Under CLASS premiums are only $5 per month for students and poor Americans. Noble intention, but subsidizing premiums for a segment of society creates an entitlement for a segment that is paid for by everyone else. The amount of the subsidy is the difference between $5 and aged based premiums projected to be $180-$240 per month. Do you think this could make premiums higher?

Limits on premium increases
CLASS Act boxes the government in a corner with regard to complying with its own regulations and it will require premiums to be higher. Any person who attains age 65, or who has paid in for 20 years and is not working, cannot have their premiums increased. This is good if your premium can’t be increased and not so good if an increase is needed and it must be spread over a smaller number of participants.

Limitation of money that can be spent on marketing and administration
CLASS specifies that 97% of all premium collected must be used to pay benefits. On the surface this sounds like a good thing. Let’s eliminate corporate excess and let the government deliver more bang for the buck. Hmmm. How has the government done with its Social Security and its own budget?

According to the American Society of Actuaries, reviewing claims alone often costs private insurers more than this – and administrative cost of enrollment, premium collection, marketing and education, the last of which is very important if CLASS is to gain widespread participation to avoid adverse selection. Even with extensive educational efforts, private long-term care insurance companies have sold only about 8% of the market to date.

If you are an employer wanting to learn more about how Long Term Care differentiates your benefits or a broker looking to help your clients with Long Term Care, reach out and contact Doug Ross at 800-483-1115 or visit EMpowerLTCI.com.

The primary concern about CLASS Act stems from “adverse selection”. This is a term used by organizations constrained by fundamental rules of business that require financial responsibility. Private insurance companies, for example build products with underwriting to control the cost of their products so they are affordable.

Adverse selection refers to a structural bias that causes a disproportionate number of people to participate who are more prone to need benefits in the future. Adverse selection violates the basic insurance principle of spreading risk over an entire population and will cause claims paid to exceed premiums collected.

Consider the following aspects of CLASS that have caused actuaries to use the term “death spiral” when describing the CLASS Act.

Employees will receive coverage without medical underwriting on a guaranteed issue basis. This concession may also be extended to non-working spouses. Every person who is uninsurable for private coverage will be motivated to participate in CLASS.

Participation is voluntary. Employees can opt-out initially, and opt back in at a later time. Why would a young healthy person participate when they can opt-in at any time?

Premiums are to be set by the Department of Health and Human Services to ensure financial viability for a 75 year period. A nominal benefit of $50-75/day is projected to cost $180-$240/month. With premiums this high participation has been estimated to be as low as 2% of the eligible population.

What is the “death spiral”?

CLASS Act is to be funded exclusively by premiums paid by participants. Participation in the program will be conversely proportionate to the size premiums of the premium. More expensive premiums will depress participation while lower premiums have the opposite effect. The death spiral is that setting premiums high enough to keep the program financially solvent will reduce participation which in turn will also affect the solvency of the program. And the problem is exacerbated the higher the premium is.

The death spiral is a catch 22 situation of sorts. Premiums need to be high enough to make CLASS actuarially sound as defined statute. People with pre-existing conditions will choose the CLASS Act in greater numbers while those who are younger and healthier choose comprehensive private insurance that is more affordable.

When people appraise different health insurance options, they typically evaluate their premiums and deductibles, but rarely question the limitations of the plan. That’s because it’s difficult (if not impossible!) to speculate on potential health care needs or the duration or severity of future health conditions. Where would a person know where to begin?

In actuality, there are three overlooked limits in almost every health insurance plan out there today. It’s this gap in health care that prompted long-term care insurance (LTCI)–a security plan that plugs the holes of traditional health insurance. LTCI ensures comfortable and quality long-term care, something more than half of us will need in our lifetime.

The three areas where health insurance does not protect a person are

Skilled medical care in a nursing home beyond 100 days

Intermediate care (such as rehabilitation) is limited to a period of time or number of visits

Custodial care is not covered at all.

To understand the limits of traditional health insurance, we need to understand the three levels of healthcare.

Skilled Care: Care provided by doctors and skilled medical professionals to make a person well again. Skilled medically needed care is covered by health insurance.

Intermediate Care: Less frequent skilled care. It also is designed to make a person well again.

Custodial Care: This is help with the activities of daily living like walking, bathing, eating, going to the bathroom, or moving around. Skilled care providers do not provide this type of care. It is not therapeutic or designed to make a person well again, and traditional health insurance generally does not pay for it.

When you approach a company to fulfill its employee insurance options, do you educate them about the current gaps in their tradition coverage? Do you offer them an opportunity to enjoy full protection? Do you feel it is our professional obligation to educate companies to help them (and their employees) make informed decisions?

If you are an employer wanting to learn more about how Long Term Care differentiates your benefits or a broker looking to help your clients with Long Term Care, reach out and contact Doug Ross at 800-483-1115

Have you read anything about the CLASS Act yet? CLASS stands for Community Living Assistance Services and Support and it’s a Ted Kennedy legacy program that slid into healthcare reform with little notice. It’s a voluntary government run long-term care insurance program that will require a decision from employers whether or not to participate. Where employers do participate, their employees will automatically have premiums deducted form their pay checks unless they specifically opt-out.

When does CLASS become effective?
Not later than October 1st, 2012, the Secretary of the Department of Health and Human services, taking into consideration the recommendation of the CLASS Independence Advisory Council will select the final benefit to be provided out of three benefits presented to meet the requirements defined in the statute. Following that date a period for public comment will be provided making a kick off date in 2013 probable.

What is long-term care?
Long-term care is help people need due to accidents or illness that can happen at any age. It is referred to as custodial care and it includes help with dressing, eating, bathing, toileting, continence or just moving around. By definition, long-term care is not intended to make you get well again and it is specifically excluded from traditional health insurance or Medicare when you reach age 65. This care can be very expensive and without insurance protection tens of thousands of Americans have become impoverished.

What’s good about CLASS?

Brings attention to the problem:
Possibly the most important benefit of the CLASS Act is that it finally brings long-term care to the front page of newspapers and the national news. For too long, far too many families with resources to purchase insurance protection have had their lives shattered when a loved one needed long-term care and they didn’t own insurance. Most people don’t understand the consequences that come with needing long-term care until it is too late and they never learned about affordable planning options when they were young.

Allows everyone to receive a nominal benefit regardless of health problems:
The other primary benefit of CLASS is to guarantee every citizen the opportunity to purchase a nominal long-term care insurance policy regardless of pre-existing medical conditions. Unlike private insurance with medical underwriting that excludes high risk individuals to control premiums, government provided coverage will accept virtually every citizen.

So what is the caution sign for?
Government run long-term care insurance stems from noble intentions and it does in fact provide some important benefits to a segment of society, but these benefits come at a price. Stay tuned for information every employer, employee and benefit specialist needs to understand before making decisions on long-term care protection and the CLASS Act.